Call and put options on bonds

FINCAD offers the most transparent solutions in the industry, providing extensive documentation with every product.

This is complemented by an extensive library of white papers, articles and case studies.

A callable bond is bond in which the issuer has the right to call the bond away from the investor for a price determined at the time that the bond is issued. This amount will typically be greater than the principal amount of the bond.

What does it mean when a bond has a put option?

A puttable bond , on the other hand, allows the investor to sell the bond back to the issuer, prior to maturity, at a price that is specified at the time that the bond is issued.

In the case of a callable bond, the individual with a long position in this security will essentially be long the bond and short the embedded call option. The call feature is positive for the issuer of the bond as it allows the issuer to essentially refinance debt at more favorable terms when interest rates fall. For the investor, on the other hand, this represents a drawback as it causes the price behavior of this security to exhibit negative convexity when interest rate levels fall.

This limits the capital appreciation potential of the bonds when interest rates fall.

Investors are usually compensated for this drawback through a greater return potential as callable bonds are usually priced at a discount to other comparable non-callable fixed income securities. By the same token, the holder of a puttable bond is essentially long the bond and long the embedded put option. This has the effect of increasing the convexity of the price-yield relationship associated with this security and thus reduces the downside risk to the investor.

This has the effect of increasing the price of the security and hence reducing the potential return to the investor. The terms of the bond component are virtually identical to those of other bonds. To evaluate an FINCAD product that can value callable and puttable bonds, contact a FINCAD Representative. FINCAD is the leading provider of sophisticated valuation and risk analytics for multi-asset derivative and fixed income portfolios.

Puttable bond - Wikipedia

FINCAD helps over 1, global financial institutions enhance returns, manage risk, reduce costs, comply with regulations, and provide confidence to investors and shareholders. Clients include leading asset managers, hedge funds, insurance companies, pensions, banks and auditors. Solutions Technology Services Resources Partners About FINCAD. Callable and Puttable Bonds. The next generation of powerful valuation and risk solutions is here.

Callable and Puttable Bonds | Derivatives Risk Management Software & Pricing Analytics | FINCAD

Portfolio valuation and risk analytics for multi-asset derivatives and fixed income. Stay up-to-date with our Quarterly newsletter. Vancouver New York London Dublin. Solutions Business Need Firm Type Department Our Products Technology Architecture Features Services Training Support Consulting Resources Resource Library FINCAD Blog Learning Resources Customer Login Partners Partnership Options Partner Directory Become a Partner About FINCAD Corporate Information News Our Locations Careers.